Leading Economist Bob Lyddon argues that Labour’s November 2025 Budget exposes a reckless reliance on vast amounts of hidden “shadow debt” to bankroll its Net Zero agenda, while cynically keeping the damage off the official balance sheet. Behind the accounting tricks lies a £1.64 trillion spending programme that will be paid for not by the state, but by businesses and households through permanently higher energy bills and taxes. By guaranteeing suppliers high prices for decades, Labour is locking the UK into uncompetitive energy costs for 30–40 years, regardless of demand or global prices. The result will be the steady destruction of British industry, higher household costs, and an economic straitjacket from which there is no easy escape.
Labour’s November 2025 Budget supplied ample corroboration of our report published by the Institute for Research in Economic and Fiscal Issues in October 2025 (‘the report’), showing that Labour plans to max out on expensive ‘shadow debt’ in order to fund its ‘investments’.[1]
This is a decade-long programme of spending on Net Zero, industry, and infrastructure, greatly expanding the state’s role in the economy, and causing an extra £1.64 trillion of borrowing to become, one way or another, the responsibility of UK businesses and individuals.
Labour’s dream of reviving Private Finance Initiative – a disastrous legacy of their last term-of-office – in the guise of Public Private Partnership or PPP seems to have been partially stymied.
However, all that will do is to increase the usage of the other financial model described in the report and make the programme even more expensive. The last thing the government will do is to scale back its plans.
What UK businesses and individuals need to demand is that the impact on them of these plans be laid out in a transparent manner: how much ‘shadow debt’, what it will cost, how that translates into both energy bills and taxes.
Scale of the plans and financing models
£1.64 trillion will be spent, but only £140 billion of this will be borrowed by the government itself and inserted into projects, either directly or through a Public Financial Institution (the new meaning of the acronym ‘PFI’) like the British Business Bank or Great British Energy.
The rest will be borrowed direct from investors by the schemes themselves under two models:
- PPP – the new branding for Private Finance Initiative – where the user of whatever asset the scheme builds is a public sector entity;
- A private scheme, acting in pursuit of government policies, which bills the cost of its goods and services to UK businesses and individuals under arrangements that ensure the scheme can pay for its own debts.
The second type of scheme is the more dangerous, because the financing is more expensive, and because the arrangements furnish the supplier with a guaranteed market and a guaranteed price.
‘Supply side reforms’
Para 3.5 on p. 55 of the full Budget document refers to ‘reforming the supply side of the economy’.[2] This does not mean the measures commonly associated with the term ‘supply side reforms’ but a version based on ‘Securonomics’: ensuring ample supplies of basics like energy and not caring too much about the associated costs.
‘Securonomics’ dictates that, in order to supposedly insulate the UK from external price shocks to the cost of energy like from the Ukraine war, the UK must become self-sufficient through renewables, thanks to the Net Zero transition.
This requires state intervention and direction so as firstly to reduce dependency on oil and gas (for example by granting no new licences in the North Sea as per paras 3.62 and 3.63 on p. 71 of the Budget document). Then inducements need to be offered to encourage the emergence of suppliers of renewables, inducements that are funded by buyers either through higher bills or through general taxation.
The intermediary body for these inducements is the Low Carbon Contracts Company.[3] The outcome is schemes like:
- The funding through general taxation of 75% of the ‘Renewables Obligation’ which is estimated to cost £6.9 billion between 2026 and 2029;
- The funding of the construction costs of Sizewell C through the ‘Regulated Asset Base’ scheme whereby £3.6 billion will be billed to UK businesses and consumers by 2031;
- ‘Contracts for Difference’ whereby a supplier experiences a fixed price for supplying energy to the grid, whether the energy is needed by consumers at the time it is supplied or not.
The net result is that large amounts of supply become available at a high, fixed cost, and UK businesses and consumers are made to pay for it whether they need it and use it or not.
Pushback on usage of PPP
The Budget document entitled ‘Balance Sheet Framework’ devotes its entire Chapter 7 to PPP.[4] This infers a veneer of control and of good governance over the usage of this ‘Son of PFI’. However, it is non-binding guidance. Spending ministries are at liberty to contract PPP schemes that do not comply with it.
‘Balance Sheet Framework’ anticipates significant uptake of PPP including by the National Health Service. However, there has already been considerable pushback.[5] The reasons for the pushback entirely reflect the experience of Labour’s past, disastrous usage of PFI. The supposed safeguards in Chapter 7 that should enable PPP to be more successful this time around have failed to convince.
Usage of ‘direct sale’ model
A scaling-back of the usage of PPP, perhaps even further than was mooted in the report, is indicated. The means a compensatory higher usage of the ‘direct sale’ model, which is also pointed to in Chapter 7 of ‘Balance Sheet Framework’.
Para 7.12 on p. 57 uses the phrase ‘taxpayers or their close proxy’: this recognises the point made in the report about the credit risk for investors in these schemes, namely that investors are taking on a proxy of ‘public sector risk’ (i.e. on taxpayers) in a situation where the arrangements in the scheme give the scheme a financial claim on a large number of users and without significant conditions. If there can be a close proxy, there can also be a distant proxy, and an intermediate proxy: all that differs is the number of users and the conditions.
Thames Water, as described in the report, is a close proxy, as would be a scheme to supply electricity to a whole region: the supply is of a basic and essential service, and the investors in the scheme can be highly confident that their agreed flows of money will materialise, because businesses and individuals have to buy and they have to pay.
‘Implicit liabilities’
There is a specific document among the Budget documents about the build-up in this manner of private sector enterprises that will supply basic and essential services in fulfilment of public policy objectives. The document is entitled ‘Guidance for managing the government’s implicit liabilities’.[6]
The document is about offering a veneer of control and of good governance over the usage of this type of scheme. However, it is again non-binding guidance and spending ministries are at liberty to contract schemes that do not comply with it and expose taxpayers to high risk. The ministry in question is likely to be the Ministry of Energy Security and Net Zero.
The key question is the possibility that the government might have to bail out a scheme if it fails financially, because of the importance of the supply the scheme is meant to provide.
The conclusions to be drawn are that Labour is well aware of the risk implied by these schemes, that their determination to achieve Net Zero is such that they are willing to expose the nation to these risks, and that it is necessary to offer some false assurances to the nation that Labour is not so irresponsible as to bury businesses and individuals in enormous debts.
The truth is that they are.
Reeves and Miliband are on exactly the same page
The existence of these documents has another objective: to project HM Treasury under Reeves as some sort of check-and-balance on Miliband at the Ministry of Energy Security and Net Zero.
In reality Reeves sees the Net Zero transition as the bedrock of – not an antithesis to – her infrastructure and investment plans. She may performatively clash with Miliband – or rather allow the press and the public to believe they disagree – but they are on the same page in agreeing that ‘securing’ our cheap, renewables energy supply is the key to growth and prosperity. That is the Securonomics school of economic thought.
Supply, demand, and who pays for the cost of over-supply
This school of economic thought sees no problem in the concept that energy may be produced in large quantities and paid for by businesses and individuals – via bills or taxes – that is not needed at the time and place it is produced, and goes to waste. Surplus of supply is no problem in the Securonomics playbook, and does not result in a fall in price for suppliers, lest that dissuade or thin out suppliers and risk continuity of supply. It is no problem that some supply goes to waste.[7] Businesses and individuals are on hand to pick up the tab for that.
The prospect-at-hand is that Miliband will enable potentially infinite over-supply for a very long period of time and at a high fixed price, and cause businesses and individuals to pay for it, one way or the other, through taxes or through bills and schemes intermediated by the Low Carbon Contracts Company.[8]
These streams of direct and indirect revenue from businesses and individuals will then cover the high amount of ‘shadow debt’ taken on to build the infrastructure for supply, and the high debt service costs.
What will be the total cost of all of this?
The report mooted that the lifetime cost of the borrowing of £1.64 trillion would come close to £7 trillion over a 30-year period, predicated on a given split between usage of the PPP model and the ‘direct sale’ model, on current prevailing interest rates, and on example interest margins pertaining to the different tranches of money within the financing models.
The report noted that the Climate Change Committee’s Seventh Carbon Budget did not appear to have factored financing costs into its Cost/Benefit Analysis.
This is a major oversight that needs to be rectified. The nation deserves to have a full picture of the implications of the Net Zero transition.
What is the effective price of energy supply that Labour is locking UK businesses into?
Reeves and Miliband are sailing the ship in accordance with their Securonomics school of thought, and it has much in common with the EU: transition to Net Zero, thereby ensuring energy security and insultation from external shocks, in exchange for a stable and predictable price for energy.
The key question is what that price is. This needs to be calculated, but not as a price per kilowatt hour of electricity. The comparator we need to have surfaced is the US$-per-barrel of oil that our cost of energy equates to, even though we are using renewables power and not oil&gas to produce the energy.
This will enable us to project the likely fate of our exporters and of our domestic businesses in the face of foreign competitors under the Free Trade Agreements that Labour is signing up. If UK businesses are locked into the energy cost component of their goods and services at a US$-per-barrel cost far higher than producers in the USA, China, India, South Korea, Australia and so on, they will be priced out of foreign markets, and also out of our domestic market, as foreign competitors undercut them in both.
The degree of devastation will naturally depend on how energy-intensive the goods or services are, but one can at least posit that any business connected to automotive, metals, or chemicals will not survive if competitors are accessing their energy far more cheaply than UK businesses.
New scenario
This is important because we now face a new scenario.
Donald Trump has his own school-of-thought around the same issue set, and it is to gain de facto control of a large portion of the world’s oil reserves, and to drive an oil-led US economic revival at US$50-per-barrel or less.
If this is the benchmark energy cost needed to compete on world markets, and if Reeves, Miliband, Starmer et all, lock UK businesses into energy costs in the long term of 30-40 years at an effective oil-price-equivalent of US$100-a-barrel, it will destroy our domestic industries, our exports and much else besides.
Need for a new ‘exchange rate’
These considerations, still less any numbers against them, are absent from the financial reports and outlooks of the Treasury or the OBR or the Bank of England. In fact these reports concentrate on the potential damage that could be caused by climate change and the dangers of doing nothing or too little too late.
These institutions now need to express the UK’s future energy costs, as they will materialise through the fully-loaded costs of the Net Zero transition, as an oil-price-equivalent, to start with so that we can predict what sort of disadvantage UK businesses will be subjected to by the Net Zero plans as they currently stand.
The next step would be to state a target cost-of-energy – again as an oil-price-equivalent – that Net Zero must deliver, in order that Net Zero put the UK at a tangible advantage, and not at a disadvantage, to those countries still relying on fossil fuels, and in the likely scenarios of how those countries choose to respond, including by increasing supply and cutting the price.
This cost-of-energy – below that of competitors – will deliver the savings that the adherents of Net Zero have promised.
We need this control mechanism to ensure this advantage comes about.
Summary and conclusions
The November 2025 Budget has confirmed the pathway upon which Labour is embarked: to trigger a massive programme of new borrowing, but structured so that it is ‘shadow debt’ leaving a minimal footprint on the measures of national debt: Public sector net debt and Public sector net liabilities.
The Budget documents show Labour’s realisation of the significant risk of the amounts so borrowed falling back onto the general public if the related schemes fail. The documents provide a set of ‘chocolate fireguard’ measures to prevent that happening.
In reality UK businesses and individuals will pay for this new mountain of expensive debt via taxes and direct billing, one way or another. The amount raised by PPP – Labour’s sequel to New Labour’s PFI – could be small in relation to the whole, causing the bulk of the money to be raised via the ‘direct sale’ model.
Under this model, which will be used for the Net Zero transition, UK businesses and individuals will subsidise suppliers through taxes that pay inducements to suppliers, and they will pay for the supply through their bills as well.
The result will be a guaranteed high price of energy for 30-40 years, as needed to service and pay off the vast amount of the ‘shadow debt’ and its high expense.
This additional burden on UK businesses and individuals has eluded all of the institutions charged with overseeing the nation’s finances, and it was not spelled out (or even referred to) in Labour’s 2024 General Election Manifesto.
Now it needs to be spelled out, and in a transparent and simple-to-understand way, because the external situation has changed. World energy prices are going to fall, and the basis of competition in markets is going to penalise suppliers from countries with high, locked-in energy prices.
The plans as currently framed by Labour promise to lock in high energy prices for 30-40 years and to cripple British businesses in domestic and foreign markets. That in turn will devastate the finances of British households.
By Bob Lyddon.
Bob Lyddon is best known as a commentator on fiscal, economic and financial issues, but he is also a historian, having been awarded an MA with Distinction in 2021 by the Open University, his dissertation being entitled ‘King’s Lynn and the ‘new police’, 1830-45’.
[1] https://www.lyddonconsulting.com/the-united-kingdom-as-a-sandbox-for-state-directed-investment-with-a-major-increase-in-shadow-debt-and-in-the-shadow-taxation-required-to-service-that-de/ accessed on 7 January 2026
[2] Final_print_HMT_Budget_2025_TEXT_PRINT_NEW, available at https://www.gov.uk/government/collections/budget-2025accessed on 7 January 2026
[3] https://www.lowcarboncontracts.uk/our-schemes/ accessed on 7 January 2026
[4] Balance_Sheet_Framework__1_ – from HM Treasury website
[5] https://www.bbc.co.uk/news/articles/cp8y8g7djxlo accessed on 7 January 2026
[6] Guidance_on_Managing_Government_s_Implicit_Liabilities – from HM Treasury website
[7] https://www.telegraph.co.uk/business/2026/01/07/scotlands-biggest-offshore-wind-farm-wasting-energy/ accessed on 7 January 2026
[8] https://www.telegraph.co.uk/business/2025/12/27/miliband-nationalised-britains-electricity-market-stealth/ accessed on 7 January 2026
